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In re Lee

United States Court of Appeals, Seventh Circuit

August 3, 2018

In re: Lester L. Lee, Debtor.
v.
Lester L. Lee, Defendant-Appellant. The William R. Lee Irrevocable Trust and Donald Eugene Lee and Robert Earl Lee, as co-trustees, Plaintiffs-Appellees,

          Argued March 29, 2018

          Appeal from the United States District Court for the Southern District of Indiana, New Albany Division. No. 4:15-cv-00182-RLY-DML - Richard L. Young, Judge.

          Before Bauer, Flaum, and Manion, Circuit Judges.

          MANION, CIRCUIT JUDGE.

         Lester Lee merged two companies he controlled. A trust administered by his nephews, with a pre-merger minority interest in one of the companies, dissented from the merger pursuant to Indiana's Dissenters' Rights Statute and obtained a judgment against that company. Lester filed a personal bankruptcy petition. The Trust commenced an adversary proceeding in that bankruptcy action, seeking to pierce the corporate veil and hold Lester personally liable for the judgment against the company. The bankruptcy court granted summary judgment for the Trust and pierced the corporate veil based on Lester's post-merger conduct stripping the company's assets. The district court affirmed. Lester appeals to us and argues piercing was inappropriate for various reasons. We affirm.

         I. Facts[1]

         Brothers Lester and William Lee created Lees Inns of America, Inc. ("LIA") in 1974 as a public company in the hotel business. About a decade later, William's sons-Robert and Donald Lee-joined the business. LIA prospered. About another decade later, LIA went private through a buy-out of the public shareholders, leaving only Lester and William as owners of LIA. At this point, Lester owned 516 shares to William's 484 shares. William created the William R. Lee Irrevocable Trust ("Trust") and transferred his LIA shares to it. Robert and Donald served as trustees.

         Conflict brewed. Around 1995, Lester encountered substantial financial difficulties associated with another company he owned, Maxim. He proposed to William that Maxim merge with LIA, but William rejected this idea. Lester then took steps to take control over LIA. The bankruptcy court covered the mounting turmoil. There is no need to delve into it here.

         At or around a shareholders meeting in 1998, Lester told Robert and Donald, "I will screw you at every opportunity," and "I will do every thing I can to make sure you never receive one dime from this company," and "I'll guarantee you one thing, I'll nail your ass to the wall." Lees Inns of Am., Inc. v. William R. Lee Irrevocable Tr., 924 N.E.2d 143, 149, 158 (Ind.Ct.App. 2010); William R. Lee Irrevocable Tr. v. Lee (In re Lee), Ch. 7 Case No. 12-90007, Adv. No. 13-59056, DE 62 at 4 (Bankr. S.D. Ind. Dec. 2, 2015) (order granting Trust's motion for summary judgment and holding Lester personally liable); Appellant's Br. at 16.

         In April 2000, Lester, as majority shareholder of LIA and sole shareholder of LLL Acquisition Corporation ("LLL"), approved a merger of these two companies. The Trust dissented from the merger. The Trust asserted its rights under Indiana's Dissenters' Rights Statute, demanded payment, and deposited its certificate of LIA stock in May 2000. LIA was merged into LLL on June 26, 2000, terminating the Trust's shareholder status and leaving Lester as LIA's sole shareholder.

         After the merger, Lester allegedly guted LIA to prevent the Trust from collecting the value of its LIA shares. In November 2000, he bought property from LIA on terms favorable to him and eventually realized substantial profits. Subsidiaries of LIA were transferred for litle or no consideration from LIA to The Lee Group Holding Company, LLC, owned by Lester's immediate family. Lester also perpetrated a collusive lawsuit (filed July 28, 2008, shortly before trial in the appraisal proceeding) in which he controlled all the named parties and caused the Jefferson Circuit Court to enter an agreed judgment that all LIA assets should be transferred to him and various companies he controlled. Lester did not disclose the transfers of the property and subsidiaries, or the collusive lawsuit, to Robert or Donald until much later.

         In September and October 2008, the Jennings Circuit Court held a bench trial in the appraisal proceeding (a/k/a dissenters' rights action). Between the trial and the judgment, Lester dissolved LIA in November 2008. In December 2008, the court entered a $7, 522, 879.73 judgment for the Trust against LIA. This amount represented the sum of the fair value of the Trust's 484 shares of LIA stock (as of June 30, 2000) minus the amount already paid by LIA to the Trust. The judgment also included interest, expert fees and expenses, and atorney's fees and expenses.[2] LIA appealed to the Court of Appeals of Indiana, which affirmed the judgment in March 2010. The Supreme Court of Indiana denied LIA's transfer petition.

         II. Procedural Posture

         In January 2012, Lester petitioned for Chapter 7 bankruptcy. In August 2013, the Trust initiated an adversary proceeding to pierce LIA's corporate veil and hold Lester personally liable for the $7, 522, 879.73 judgment. In December 2014, Lester waived discharge. During the bankruptcy proceedings, Lester testified he "[a]bsolutely" filed the collusive lawsuit to make sure the Trust would not recover if it obtained a judgment in the appraisal proceeding. He did not dispute that he told Robert and Donald: "I will screw you at every opportunity," and "I will do everything I can to make sure you never receive one dime from this company," and "I'll guarantee you one thing, I'll nail your ass to the wall." Indeed, Lester lists two of ...


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